[2023] KETAT 264 (KLR)

Pollen Limited v Commissioner of Domestic Taxes (Appeal 311 of 2022) [2023] KETAT 264 (KLR) (26 May 2023) (Judgment)

Neutral citation: [2023] KETAT 264 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 311 of 2022

RM Mutuma, Chair, E.N Njeru, Rodney Odhiambo Oluoch & D.K Ngala, Members

May 26, 2023

Between

Pollen Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company duly incorporated under the Companies Act. Its principal business is the production of ornamental cuttings for export.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya. Under Section 5(1) of the Act, it is an agency of the Government for collection and receipt of all tax revenue. Further under Section 5(2) of the Actwith respect to the performance of its function under subsection (1), it is mandated to administer and enforce all provisions of the written laws as set out in Part 1 & 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Appellant produces ornamental plant cuttings for export to Syngenta Seeds B.V, a company based in Netherlands. In addition, it also provides additional research and development services to another entity known as Syngenta Crop Protection (SCP) AG a non-resident company based in Switzerland.

4. The Appellant applied for a VAT refund on 16th November, 2021 for the period January 2020, February 2020 and March 2020 amounting to Kshs 10,843. 996. 00. The Respondent rejected the Appellant’s applications on 18th November 2021.

5. The Respondent rejected the refund claim application on the basis that the Appellant produces unrooted and rooted flower cuttings and offers research and development services on behalf of the principal and is reimbursed all costs incurred, hence, there was no export service.

6. The Appellant issued its notice of objection dated December 17, 2021 stating its grounds of objection.

7. The Respondent then proceeded to issue its Objection decision vide a letter dated 11th February 2022.

8. Dissatisfied with the Respondent’s decision, the Appellant filed its Notice of Appeal dated March 11, 2022. It proceeded to also file its Memorandum of Appeal and Statement of Facts dated and filed on March 25, 2022.

The Appeal 9. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal:-a.That the Respondent erred in law and fact by finding the Appellant had incurred the input VAT, subject of the refund claims, as an agent of its non-resident customers and;b.That the Respondent erred in law and fact by rejecting the Appellant’s VAT refund application on the assertion that it was reimbursed for costs including input VAT incurred in providing services to its non-resident customers.

The Appellant’s Case 10. The Appellant averred that its business model is one of an independent contractor and not an agent as alleged by the Respondent, it averred further that it was appointed by Syngenta B.V as a non - exclusive toll producer of unrooted and rooted cuttings of flower through a Toll Production Agreement and also appointed by Syngenta SCP to perform R & D activity through a Research and Development Service Agreement.

11. The Appellant averred that under both the Toll agreement and the R &D agreement, the consideration received for the services rendered is calculated as the sum of costs incurred in production/research and development plus a mark-up. It stated that contrary to the Respondent’s assertions, the expenses incurred was for the furtherance of its business and thus part of its cost of sales. This was in accordance with the two agreements and as per provisions of Section 13(1) of the VAT Act.

12. It was the Appellant’s assertion that since it’s related to both Syngenta B.V and Syngenta SCP, the remuneration of its services is calculated on an arm’s-length basis in compliance with Section 13 (1) (b) as well as the Income Tax Tariff Pricing Rules, 2006.

13. The Appellant refutes the Respondent’s allegation that it was an agent of Syngenta B.V and Syngenta SCP and asserted that a cost-plus model of remuneration is simply one of the transfer pricing methods used in determining the consideration between two related entities at arm’s length. Therefore, this cost - plus model of remuneration on its own is not indicative of a principal-agency relationship, rather it is simply a method of determining the open market value consideration to be paid to the Appellant.

14. To buttress its argument on what constitutes an agent and agency, the Appellant relied on the following cases;i.Kennedy v De Trafford (1897) AC 180 where it was stated that:-“No word is more commonly and constantly abused than the word “agent.” A person may be spoken of as an “agent” no doubt in the popular sense of the word may properly be said to be an “agent” although when it is attempted to suggest that he is an “agent” under such circumstances as created legal obligations attaching to agency, that use of the word is only misleading. Therefore, whatever expression Dodson may have used calling himself an agent, and however true or applicable they may be in the popular sense, in point of law and in their legal sense, they are meaningless”ii.Bow Stead & Reynolds on Agency reads as follows:-“The word agency to a common lawyer, refers in general to a branch of the law under which one person, the agent, may directly affect the legal relations of another person, the principal, as regards yet other persons, called third parties, by acts which the agent is said to have the principals authority to perform on his behalf and which when done are in some respects treated as the principals’ acts……The term agency” is best used …. To connote an authority or capacity to create legal relations between a person occupying the position of principal and third parties usually, the legal relations so created will be contractual in nature.”

15. The Appellant submitted therefore that the relationship between itself and Syngenta B.V or Syngenta SCP does not qualify as a principal-agent relationship in accordance with the foregoing authorities. Further that a key characteristic of the agency relationship is that the agent has power to bind the principal should it enter contracts with third parties as an agent, which is not the case herein. That the tolling agreement does not grant the Appellant any power to bind Syngenta in agreements with third parties.

16. The Appellant asserted that the Respondent’s reliance on the Tribunal’s Judgement in the Cofftea case is baseless for reasons that the relationship was that of commission agent of a non-resident company where Cofftea would receive funds upfront from its non-resident principal to support its expenses and to buy tea and coffee for and on behalf of the principal.

17. The Appellant averred that under the provision in Section 13(5) of the VAT Act, the only expenses disallowable are disbursements incurred merely by an agent on behalf of a third party and not recharges. Further that the terms disbursements and recharges do not mean one and the same thing hence the Respondent erred in equating reimbursement of expenses or recharges for costs to disbursement.

18. The Appellant relied on Her Majesty’s Revenue and Customs (HMRC) which provided the following distinctions between recharges and disbursement and guided as follows;“Costs that your business incurs itself when supplying goods or services to customers are not disbursements for VAT. It’s you who buys the goods or services for use in your own business. It’s up to you whether or not you itemise costs like these in your invoices. If you do show them separately when you invoice your customers, they are known as recharges, and not disbursements. You’ll have to charge VAT on them whether you paid any VAT or not.”

19. The Appellant therefore argued that it bought goods and services for its own use in furtherance of its business which is the production of rooted and unrooted cuttings to the requisite standards. That the cost it incurred when supplying services to Syngenta B.V and SCP are not therefore disbursements as described in Section 13(5) of the VAT Act, 2013.

Appellant’s Prayers 20. Wherefore the Appellant prays that: -a.The Appeal be allowed.b.The Respondent’s Decision dated 11th February 2022 be annulled and set aside.c.The Appellant be paid VAT refund claims amounting to Kshs 10. 843. 996. 00 relating to the period January 2020 to March 2020. d.The costs and incidentals to this Appeal be awarded to the Appellant;e.Any other orders that the Tribunal may deem fit.

The Respondent’s Case 21. In response, the Respondent addressed the Appellants grounds of Appeal through its Statement of Facts dated and filed on April 20, 2022.

22. The Respondent contended that it rejected the refund claim application on the basis that the Appellant produces unrooted and rooted flower cuttings and offers research and development services on behalf of the principal and is reimbursed all costs incurred; hence, there was no export of services as the Appellant in this case is an agent of the two (2) non-resident companies.

23. It was the Respondent’s argument that the Toll agreement stated that all costs of production was to be borne by Syngenta B.V including the supply of elite material for free. That this in the Respondent’s view was similar to the treatment of costs under the R & D agreement. That the Toll agreement defines costs to include;a.Costs incurred for maintenance of production plant.b.Costs out of idle capacity of its production plant.c.All salary costs and related benefits for employeesd.All costs for non-salary chain purchases such as energy, water and other utilitiese.All costs for production material

24. The Respondent argued that clause 2 of the Toll agreement on toll production principles states that the Appellant shall produce in the name and on behalf of Syngenta B.V, cuttings of varieties listed in production orders from Syngenta B.V. The Respondent also made reference to clauses 3, 4, 6 and 7 of the Toll agreement and Research & Development Agreement. The Respondent stated that the Appellant incurred costs in furtherance of its business of non-resident companies and that the Appellant was reimbursed for all the costs incurred plus a mark-up of 5 %. These reimbursed costs plus mark-up are referred to us “tolling fee” and remuneration as per the 2 agreements.

25. The Respondent made reference to Section 13(5) of the VAT Act which provides that the only expenses disallowable are disbursements incurred merely by the agent on behalf of a third party and that Section 17(1) of the VAT Act provides for a registered person to claim input incurred to make taxable supplies.

26. The Respondent stated that it is factual that the Appellant produces unrooted cuttings on behalf of Syngenta B.V and that the cuttings are delivered outside Kenya. Similarly, the Appellant provides Research and Development services to Syngenta SCP a non-resident entity, amounting to a service outside Kenya. However, a review of the invoices indicates that the Appellant is reimbursed for costs plus a mark-up on a monthly basis where VAT is charged at zero rate.

27. The Respondent therefore asserted that the relationship between the Appellant and the two non-resident companies is deemed to be that of an agent acting on behalf of its principals and being remunerated a margin on cost for the services provided. Further that the input VAT on costs is incurred by the non-resident companies as precisely stated in clause 6. 1 of the tolling agreement - “VAT shall be payable in addition to the tolling fee, if due”.

28. It was the Respondent’s contention that having reimbursed the Appellant on all costs incurred plus input VAT on such costs, Syngenta B.V and Syngenta SCP are the persons entitled to deduct input VAT deeming that the taxable supply was made to them.

29. The Respondent therefore prays that the Tribunal considers the case and finds;a.That the Appellant is an Agent of Syngenta B.V and Syngenta SCP.b.That the reimbursements to the Appellant by the agents, Syngenta B.V and Syngenta SCP included the input VAT and thus payable.c.That the amount of Kshs 10,843,996. 00 is due and payable from the Appellant.d.That the Appeal herein be dismissed for lack of merit with cost to the Respondent.

Submissions Of The Parties 30. In its Written Submissions dated and filed on February 28, 2023, the Appellant has submitted on four issues.

a. Whether the Appellant is an Agent of Syngenta B.V 31. The Appellant submitted that an agency relationship requires the consent of the principal and the agent and that consent must be given either expressly or by implication from their words and conduct without which there cannot be an agency relationship. Further that as being a legal relationship, an agency must satisfy two essential elements; the consent (or assent) of both principal and agent; and the authority given to the agent by the principal to alter the principal’s legal relationships with third parties.

32. The Appellant therefore submitted that its relationship with Syngenta B.V and Syngenta SCP does not qualify as a principal–agent relationship as the agreements appointing the Appellant to produce rooted and unrooted cutting do not grant the Appellant any power to bind Syngenta B.V in agreements with third party obligations. Further that the Production and Sales Agreement dated 1st January 2019 and the R & D Agreement respectively specifically provide that the relationship of the parties is that of an independent contractor. The Appellant submitted further that there is no evidence provided by the Respondent that the Appellant contracts on behalf of Syngenta B.V and Syngenta SCP.

33. On the issue of the pricing method of its services, the Appellant submitted that the application of the cost-plus method for transfer pricing purposes requires the Appellant to determine the cost basis and apply an arm’s length mark up on these costs and that there is no other way to apply the cost-plus method without a clear determination of the costs. Further that the Appellant’s use of the cost-plus method cannot be the adequate to establish agency as alleged by the Respondent without producing further evidence that such a relationship exists. The Respondent’s assertions that there exists an agency relationship between the Appellant and Syngenta B.V and Syngenta SCP are therefore baseless.

b) Whether the Respondent has misinterpreted the meaning of disbursements in Section 13(5) of the VAT Act, 2013 34. The Appellant submitted that it applies the cost-plus transfer pricing method as provided for under Rule 7 (c) of the income tax (Transfer pricing) Rules to ensure that its transactions with Syngenta B.V and Syngenta SCP are at arm’s length. Further that the Respondent’s contention that the recharge of costs in applying the cost-plus method is a disbursement as envisioned under Section 13(5) of the VAT Actis misleading. It stated further that the Respondent erred in equating the aggregation and recharging of costs incurred for purposes of applying Rule 7(c) of the IncomeTax (Transfer Pricing) Rules with disbursement.

35. The Appellant contended that a “recharge” is not the same as a disbursement as recharges consist of costs that the business incurs itself while supplying goods or services to customers. It contended further that it bought goods and services for its own use in furtherance of its business, which is the production of rooted and unrooted cuttings to the requisite standards. This cost incurred cannot therefore qualify for treatment as disbursements for VAT purposes for the reason that disbursements only apply when one is acting as an agent of another.

36. The Appellant submitted that under the provision in Section 13 (5) of the VAT Act, the only expenses disallowable are disbursements incurred merely by an agent on behalf of a third party and not recharges. The Appellant is therefore not an agent of either Syngenta B.V or Syngenta SCP and there is therefore no factual or legal merit to the Respondent’s contention that the costs incurred by the Appellant could not be included in the consideration for VAT purposes due to Section 13 (5) of the VAT Act.

c) Whether the Appellant is entitled to claim input VAT 37. It was the Appellant’s submission that the input VAT it claimed, and which is the subject of the present dispute with the Respondent, relates to the input costs incurred on its own behalf in the productions of goods for export and in provision of exported services. Further that the input VAT it incurred does not form part of the cost base for purposes of determining its remuneration since it understood that the input VAT is recoverable against this output VAT as per the provisions of Section 17 of the VAT Act, 2013. It submitted further that in accordance with the provisions of Section 17 (5) of the VAT Act, it lodged a VAT refund claim with the Respondent for the tax period January 2020 to March 2020.

d) Whether the Appellant is making exempt supplies 38. The Appellant submitted that the Respondent’s allegation at paragraph 20-26 that the supplies by the Appellant are VAT exempt on the basis that the Appellant provides horticultural services which are exempt and that the Appellant cannot claim input VAT, is misleading as this was not the basis of rejection of the refund or of the Appellant’s Notice of objection. Further, the Respondent did not raise the issue in its Statement of Facts dated and filed on April 20, 2022 and has only introduced it in the Respondent’s submissions.

39. The Appellant averred that it is a well settled principle of law that parties are bound by their pleadings hence the Respondent is bound its Objection Decision dated February 11, 2022 and Statement of Facts dated April 20, 2022. It averred further that without prejudice to the above the Respondent’s submissions at paragraph 20-26 even contradict its own Objection Decision dated February 11, 2022.

40. The Appellant relied on the holding in the case of Republic vs Chairman Public Procurement Administrative Review Board & another Ex-Parte Zapkass Consulting and Training Limited & another (2014) eKLR where Korir, J held that:-“The Applicant, the respondents and the interested party all introduced new issues in their submissions, Submissions are not pleadings. There is no evidence by way of affidavits to support the submissions. New issues raised by way of submissions are best ignored”.

41. The Appellant concluded its submissions by averring that its services are zero-rated and that even the Respondent, in its Objection Decision clearly acknowledged that the Appellant exports goods and services as defined under the VAT Act and as such they are zero-rated supplies. In the circumstances, and as per the provisions of Section 17 (5) of the VAT Act, the Appellant is entitled to cash refunds from the Respondent relating to the excess input tax for making the zero-rated supplies which it correctly claimed.

42. In its Written Submissions dated November 15, 2022 and filed on November 16, 2022, the Respondent raised two issued for determination.

a. Whether the Respondent erred in holding that the Appellant is an agent of Syngenta Limited in claiming the VAT refund. 43. The Respondent submitted that the Appellant, in the course of carrying out its principal activity of producing plant cuttings was appointed by Syngenta B.V, a company based in Netherlands to produce unrooted cuttings on behalf and in the name of Syngenta B.V. This arrangement was done through entering into an agreement between the Appellant and Syngenta seeds B.V, referred to as a Toll Production Agreement. The Appellant further entered into a Research and Development Agreement with Syngenta Crop Protection AG (Switzerland) for research and development services on seeds and flower cuttings.

44. The Respondent submitted that the import of the two agreements was that Syngenta Seeds B.V was to reimburse for all costs incurred in research, development and production of flower cuttings. The Appellant was to invoice Syngenta Limited for costs that it had incurred in research and development of the flower cuttings, whereas as per the Toll Production Agreement, the Appellant produces on behalf and in the name of Syngenta Netherlands and is reimbursed all costs incurred plus a 5% mark up.

45. It was the Respondent’s submission that the Appellant’s VAT refund claim was rejected because of the fact that among other reasons, an interpretation of the agreement showed that the Appellant is an agent of Syngenta Seeds B.V. As a consequence, and in accordance with Section 13(5) of the VAT Act 2013, it’s the Principal who may deduct input VAT to an agent on behalf of the Principal.

46. The Respondent submitted that there existed an agency relationship between the Appellant and Syngenta Seeds B.V and that the Black’s Law Dictionary 10th Edition defines Agency as;“A relationship that arises, when one person (principal) manifests assent to another (an agent) that the agent will act on the principal’s behalf, subject to the principal’s control, and the agent manifests absent or otherwise consents to do so….”

47. The Respondent submitted further that according to Halsbury’s Law of England 4th Edition volume 1 (2) paragraph 19 and 20, a principal agency relationship is created by the express or implied agreement of principal and agent or by ratification by the principal of the agent’s acts done on his behalf. Further that express agency is created where the principal or some person authorized by him, expressly appoints the agent whether by deed, by writing under hand or orally. That implied agency on the other hand arises from the conduct or situation of parties. The Respondent therefore stated that a principal agency relationship is implied by virtue of the fact that Syngenta Limited reimburses the Appellant for all costs that it incurs in research and development of flower cuttings. Consequently, due to this control, principal-agent relationship is created.

48. The Respondent cited the observation in the judgement in the case of Commissioner of Domestic Services vs Dutch Flower Group Kenya (2021) KEHC 23, where it was stated.“It is clear that what creates an agency relationship is the degree of control that the principal retains in what the agent does on its behalf. In this regard, where parties in a relationship envisage and agree that one will retain some control over another in the latter’s conduct or execution of some duty, an agency relationship is created. It matters not what the parties call that relationship. It is the legal effect that arise from their relationship that will count.”

49. The Respondent also referred to the Tribunal decision in Cofftea Agencies Limited vs Commissioner of Domestic Taxes 2016 eKLR wherein the Tribunal stated that: -“From the indisputable facts above, it is clear to the Tribunal that in making the subject payments, the Appellant acted as an agent of the Principal. The Appellant procured for the various services on behalf of the Principal and paid for the same from monies belonging to the Principal and /or subsequently fully reimbursed by the Principal."

50. To buttress its argument, the Respondent referred the Tribunal to Clause 2 and clause 6. 1 of the Toll Production Agreement which provided as follows:-“The parties agree that Producer shall produce in Kenya, in the name and on behalf of Syngenta Netherlands, the unrooted cuttings of the varieties listed in the Production orders, according to the terms and conditions of the present agreement, the Production orders and any specific instructions given by Syngenta Netherlands. Syngenta Netherlands shall pay to Producer the Tolling Fee as described in article 6”Clause 6. 1“In consideration for carrying out the Production by Producer of the unrooted cuttings, Syngenta Netherlands shall pay and /or reimburse Producer for all costs associated with the production.”

51. The Respondent drew similarity between this Appeal and the case of Dutch Flower where the court found that there was a principal agency relationship between Dutch Flower and Flower Retail Europe B.V and Flower Connect Holdings B.V as demonstrated in the below clauses under the Research & Development Services Agreement:-“Clause 4“On Remuneration and Payment provides reimbursement of costs and expenses incurred in connection with the performance of the agreement”Clause 4. 6“SCP to pay the service provider all invoiced amounts in accordance with SCP treasury instructions for inter-company payments.Clause 4. 7“Any local statutory exchange losses or gains realized in relation to the R & D Services rendered under the Agreement shall be borne by SCP at actual costs”Clause 3. 9 on Performance of R & D Services and R & D Budget“the Appellant agrees and on a budget with SCP and should not deviate from the budget terms as in the case of Dutch flower.”

52. The Respondent therefore submitted that the Appellant supplies a service which is remunerated vide a commission from Syngenta. It therefore follows that Syngenta controls all the aspects of production including quality and safety of personnel as shown in Clause 7. 4 of the Toll Production Agreement. This clearly amounts to control and implied Agency.

53. The Respondent expounded on the law on what the purpose of input VAT was by explaining that input is charged by a person who makes a taxable supply. That it is a cost incurred when making this taxable supply. The Respondent expounded further that the logic of input is to alleviate the tax pain, and that input is not a conduit for enrichment. In this case the tax pain the Appellant was seeking to alleviate through claiming input had already been born by Syngenta B.V and Syngenta SCP.

b) Whether the services provided by the Appellant were horticultural services which are exempt services under Paragraph 5, Part II of the First Schedule to the VAT Act 2013 and not zero-rated. 54. The Respondent submitted that the Appellant conducts research and development services on flower cuttings and unrooted cuttings to Syngenta Crop Protection AG, and that the expertise that the Appellant provides relates to horticultural services aimed at improving the quality of the unrooted flower cuttings. These services are therefore exempt and not zero-rated. It argued further that it’s only the expatriation of taxable services that is zero-rated and can therefore attract a refund under Section 17(5) of the VAT Act. The Appellant’s services, being horticultural services are exempt as per the provisions of Part II Paragraph 5 of the First Schedule of the VAT Act 2013. As a consequence, the Appellant cannot claim input VAT from these services hence the application for refund was properly rejected on that ground.

55. In explaining what horticultural services are and the implication as to tax, the Respondent relied on the finding in the High Court interpretation in the case of Exporte Fontana Ltd which found horticultural services to be… “processing, marketing, packaging, handling, panelling, airlifting, sale by exportation or any other means, transportation or horticultural.”

Issues For Determination 56. The Tribunal having carefully reviewed the pleadings filed by the parties, the documentation availed and submissions made by the parties, is of the considered view that this Appeal distils into two issues for determination.a.Whether the Appellant is an agent of Syngenta B.V; andb.Whether the Appellant is entitled to claim input VAT.

Analysis And Findings 57. It is to these issues that the Tribunal will seek to analyse and determine.

a. Whether the Appellant is an Agent of Syngenta B.V 58. The Appellant refuted the Respondent’s assertion that the Appellant was an agent of Syngenta B.V and argued that a key characteristic of an agency relationship is that the agent has power to bind the principal should it enter contracts with third parties as an agent. Further that the agreements appointing the Appellant to produce rooted and unrooted cuttings, does not grant the Appellant any power to bind Syngenta B.V in agreements with third party obligations.

59. On the other hand, the Respondent argued that the import of the two agreements was that Syngenta B.V was to reimburse all costs incurred in research, development and production of flower cuttings upon the Appellant raising invoices. Further that according to the Toll Production Agreement, the Appellant produces on behalf and in the name of Syngenta Netherlands and is reimbursed all costs incurred plus a 5% mark

60. The Tribunal has had a perusal of the Toll Production Agreement between the Appellant and Syngenta Seeds B.V to be able to understand the relationship that is derived from entering into the Agreement. That Article 2 of the said agreement provides as follows:-“The parties agree that Producer shall produce in Kenya, in the name and on behalf of Syngenta Netherlands, the unrooted cuttings of the varieties in the Production Orders, according to the terms and conditions of the present Agreement, the Production orders and any specific instructions given by Syngenta Netherlands.Syngenta Netherlands shall pay to Producer the Tolling Fee as described in article 6. Syngenta Netherlands shall deliver, or have delivered at its own costs all Elite Material to Producer, in accordance with article 3. The parties hereby confirm that, to the best of their knowledge and belief all of the arrangements and transactions contemplated under this Agreement have been concluded on the same basis and the same terms as those which would have been agreed if they were unconnected third parties”.

61. The Black’s Law Dictionary defines an Agent as a person authorized by another (principal) to act for or in place of him, while the same Dictionary defines a principal as someone who authorizes another to act in their place. A principal-agent relationship on the other hand is an arrangement in which one entity legally appoints another to act on its behalf.

62. Indeed, the wording of Article 2 of the Toll Agreement to the effect that “The Parties agree that Producer shall produce in Kenya, in the name and on behalf of Syngenta Netherlands…” denotes a relationship where the Appellant acts as an agent in the name of and on behalf of the principal to facilitate the principals’ business activities.

63. The Tribunal agrees with the observation of the High Court in the case of Commissioner of Domestic Services vs Dutch Flower Group Kenya where Justice Mabeya held as follows:-“... the net effect of the clauses , spell the relationship between the two are in an agency relationship . The income of the Respondent is controlled by FRE BV, in that the two agree at the beginning of the year on a budget, on the cost for which FRE pays the same to the Respondent plus a 5% thereon as the income for the latter…. The costs of the Respondent in providing the services to FRE are those of the latter. They are paid in advance by FRE through settlement of or are reimbursed in full plus 5% as per agreement.That being the case, allowing the Respondent to claim input VAT would be to allow it to claim a cost belonging to FRE and not itself. The Appellant was right in rejecting the claim. That ground succeeds.”

64. In this case Syngenta B.V has a higher degree of control over the Appellant and what the Appellant does on its behalf hence creating an agency relationship as envisaged in the Toll Agreement.

65. In view of the foregoing, the Tribunal finds that indeed the relationship between the Appellant and Syngenta B.V was that of principal/agent.

b) Whether the Appellant is entitled to claim input VAT. 66. Having arrived at the above conclusion that the input VAT the Appellant sought to claim a refund for belonged to the principal and not the agent, the Tribunal finds that the Respondent was right in rejecting the claim.

Final Decision 67. The upshot of the foregoing is that this Appeal lacks merit and therefore fails. Consequently, the Tribunal proceeds to make the following final orders: -a.The Appeal be and is hereby dismissed.b.The Respondent’s Objection decision dated February 11, 2022 be and is hereby upheld.c.Each party to bear its own costs.

68. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 26TH DAY OF MAY, 2023………………………ROBERT M. MUTUMACHAIRPERSON………………………ELISHAH N. NJERUMEMBER………………………RODNEY O. OLUOCHMEMBER…………………………DELILAH K. NGALAMEMBER